This is a topic that most brokers do not put in writing and are really awkward talking about.
Why? They want to get the absolute most that they can get. They view themselves as “dealmakers” and in this case they are dealing for themselves.
The real question is what are they going to do for YOU?
- How much value are they going to bring?
- Can they stimulate the market and develop a strong list of qualified buyers?
- Can they trigger competitive bidding between several buyers?
- Can they secure the best possible price for you?
- Will they try to sell your company to the first bidder to grab a fee and run?
Many sellers focus on the fee percentage when comparing brokers. That is a poor myopic way to evaluate.
As discussed previously, the correct approach is to select a broker/advisor based upon a multitude of evaluative criteria to ensure selecting a high quality one that can actually perform.
Would you rather pay 5% of 5,000,000 or 8% of 9,000,000? That is what is at stake between a poor broker and a premium quality advisor. You must take the selection process very seriously.
With that understood, you still want to be vigilant about obtaining and evaluating proposed fee structures. Anyone can get opportunistic when allowed to. Everything about M&A is a negotiation and that includes fee structures.
At our firm we have a statement that we are very proud of. “We are a Christian firm and we are purpose driven not fee driven”. That isn’t theory. That is practice.
Key Note – fee percentages are always significantly higher for smaller transactions. The reason is because a 25,000,000 deal is much easier to do than a 5,000,000 deal. That may not seem intuitive but it is correct. With a 25,000,000 transaction you have much more sophisticated sellers, buyers and lenders. They have all typically done numerous deals and they are experienced and disciplined and focused on completing the transaction on time and for the offer price.
Our firm has a clear concise rate schedule.
- < 10M — 8%
- 10M – 15M — 6%
- 15M – 20M — 4.5%
- > 20M — 3%
Many brokers charge 12% - 10% for deals under 10M. We just cannot go there. We would literally feel guilty charging our clients that high of a percentage.
In fact, we feel guilty charging our clients anything. They worked really hard for their equity and we think that belongs to them.
Our goal is to always strive to exceed our sellers required price so that our fees are paid out of the excess. De facto the buyer is then paying our fees.
Bottom Line. Select an outstanding advisor and go to the market as a tandem. This is the very best way to achieve maximum value. The rest will take care of itself.